Bridgelux Deal Points to Pressures in LED Market

Like solar energy, the field known as LED lighting has been marked by high hopes and tough realities. A new deal this week between a company called Bridgelux and Toshiba is another sign of the times.

The Livermore, Calif., company has raised some $230 million since it was founded in 2003 as eLite Optoelectronics. It began making chips using the technology more formally known as light-emitting diodes, as well as products containing them. LEDs not only generate light using much less electricity than incandescent bulbs, they also last much longer.

After changing its name, Bridgelux grabbed a higher profile after Bill Watkins, the outspoken former CEO of Seagate Technology, took the reins in 2010 and began talking up a radical shift in LED technology. Watkins in February gave up the CEO title to Bradley Bullington, another former Seagate executive, while he remains chairman.

Most LEDs are made by depositing films of the material gallium nitride on a wafer made from sapphire. Bridgelux, while designing and selling LED chips based on that approach, proposed a way to make them much less expensively using lower-cost silicon wafers–the same material used in making most semiconductors.

In May 2012, it reached a deal to help commercialize the technology with Toshiba, a longtime manufacturer of chips and other electronics products. The big Japanese company also took an equity stake in Bridgelux.

Tim Lester, who serves as Bridgelux’s chief operating officer and chief financial officer, says there were two paths envisioned for high-volume manufacturing. In one approach, each company would arrange for its own manufacturing, with Toshiba paying Bridgelux a royalty for chips it produced, he says. Or they could have manufactured jointly, with Bridgelux having to share some upfront costs for factory equipment.

The options turned out to be unappealing, Lester says, particularly in view of the fact Bridgelux would have had to raise money–not an easy prospect at the moment for a company in its position. “Our other pathways all required additional capital,” Lester says.

So Bridgelux late Monday announced another kind of deal with Toshiba. The larger company is essentially purchasing Bridgelux’s silicon LED assets and also hiring a research team of nearly 40 people who will continue to operate within the current building in Livermore. The two companies will collaborate on ramping up a factory in Japan to make the LEDs, which Bridgelux will buy and use in its products.

Instead of having to make a capital investment, in other words, Bridgelux gets an unspecified cash infusion to help keep operating, as well as a reduction in staffing.

Still, the vision seems considerably less ambitious than the original plan for the large building in Livermore. Lester says the company once envisioned getting U.S. Department of Energy loans and conducting manufacturing there, emulating the path taken by the ill-fated Silicon Valley solar panel maker Solyndra.

“We were going to make sapphire chips,” Lester says. “It is a much larger building than you’d have for R&D alone.”

But LED prices kept dropping at an alarming rate, just like solar panel prices did, and manufacturing seemed too risky. Bridgelux began relying on Asian companies to make its conventional LEDs. Now it will rely on Toshiba for its silicon-based version.

Not all LED startups are throwing in the towel on U.S. manufacturing. Soraa, which has an entirely different technology that places a layer of gallium nitride on a wafer of the same material, is making all its chips at a factory in nearby Fremont, Calif.